Power of Compounding: SIP (Systematic Investment Plan) is an investment strategy in mutual funds that allows investors to invest money based on their financial capacity. This means that investors can start investing with as little as Rs 500 per month. Furthermore, they can choose the investment frequency – weekly, monthly, or quarterly. Additionally, people can adjust, pause, or add additional amounts to their contributions depending on their financial situation. One of the key benefits of SIP is the power of compounding. Compounding is a process in which you earn capital gains not only on the principal but also on the accumulated capital gains from previous periods. Using the power of compounding, one can create a substantial amount over time through the snowball effect.
Whether you are saving money for your car, house, children’s education or anything else, this strategy can help you accumulate a substantial amount in the long run.
There are many advantages of SIP, such as
– Investment flexibility
– Power of compounding
– Rupee cost averaging
– Diversification
In this write-up, we will calculate how much money you need to invest in SIP each month to generate a Rs 1 crore corpus in 10 years. It should be noted that we are assuming an annualised return rate of 12 per cent for all calculations.
Understand the scenario
- Target: Rs 1 crore
- Time: 10 years
- Annualised return rate: 12% (assumed)
- Investment per month: ?
SIP investment: Rs 1 crore in 10 years
If the annual rate of return is 12 per cent, how much do you need to invest in SIP mutual funds every year to create a wealth of around Rs 1 crore in 10 years? Let’s find out
How much money do you need to invest in SIP/month?
According to the calculations, you will need to invest at least Rs 44,700 per month in SIP mutual funds to create a wealth of over Rs 1 crore in 10 years.
What will your average investment be in 10 years?
In 10 years, you will invest a total of Rs 53,64,000 in SIP.
What will be your expected capital gain in 10 years?
With a monthly SIP investment of Rs 44,700, your expected capital gains will be around Rs 46,50,404.
At the end of 10 years, what is the total amount you can receive?
At the end of 10 years, you will receive a total of Rs 1,00,14,404. This includes the principal investment and capital gains.
Full Calculation Summary
- Total Investment Amount: 53,64,000
- Capital Gains: Rs 6,50,404
- Total Approx. Return: Rs 1,00,14,404